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Home Publications Blogs Beat the Press Household Debt Rose Because Foreclosures Fell

Household Debt Rose Because Foreclosures Fell

Wednesday, 19 February 2014 07:32

The NYT had an article discussing a release of data on household debt by the NY Fed. The article noted that debt rose rapidly and highlighted the increase in mortgage debt in the fourth quarter, the first since before the downturn.

Actually, the main reason that mortgage debt increased in the fourth quarter, as compared to declines in prior quarters, was due to a lower rate of write-downs of bad debt. There was no surge in new mortgage debt in the fourth quarter.

Comments (5)Add Comment
written by LSTB, February 19, 2014 7:31
...And the Times has nothing to say about the 90-day delinquency rate for student loans. It was over 10 percent for all of 2013 while other kinds of debt saw their delinquency rates drop.
Delinquency rates for student loans.
written by ArgosyJones, February 19, 2014 8:45
Student loans are different from others, since they can almost never be discharged in bankruptcy, plus, you're dealing with a whole different demographic who faces a very tough job market right now. I don't think we would expect delinguency rates to always track those in other markets.
You must have read a different article than I did.
written by Bill H, February 19, 2014 9:37
How does a "lower rate of write downs" cause a "$152 billion rise in mortgage debt" as stated by the article? It will cause the amount of debt to decline less rapidly, but how does it cause it to increase? Interest rates go up, but so far rate increases have been small and surely have not increased sufficiently to increase mortgage debt by that magnitude.

Even if that were the case, the proper rebuttal to the argument would not be that foreclosures have declined, but rather that mortgage has increased due to rising interest rates.

The idea that a "lower rate of write downs" has caused a significant increase in outstanding mortgage debt simply makes no sense.
Rate of Increase in Debt Is Apparent But Not Real
written by Ron , February 19, 2014 10:37
I believe the article is saying that increases in mortgage debt in previous quarters were offset by foreclosures, which didn't happen in the last quarter. So it appeared there was an increase in new mortgages last quarter when there actually wasn't. Not sure, but that's what I think.
People aren't paying off debt, per se
written by Dave, February 20, 2014 8:26
This is interesting because it confirms to some extent a point that I've tried to get across to some economists: that the sudden savings shift from consumers has nothing to do with paying off debt or saving money. It has to do with the specific effects upon certain groups of the lack of investment opportunity -- in housing and everywhere else. There's a tendency for people to read these numbers as psychological metrics, which is just ridiculous. In other words, when aggregate savings increases, some people believe this indicates people are getting more pessimistic about the economy. Ludicrous. Aggregate numbers don't measure psychological phenomenon, they just average the behavior of lots of people.

@Bill H:
"The idea that a "lower rate of write downs" has caused a significant increase in outstanding mortgage debt simply makes no sense. "

It makes complete sense. At any particular time there are people taking out new mortgages or larger mortgages, and there are people paying off mortgages or defaulting on mortgages. When you add it all up, you get a net increase or decrease in mortgage debt. That number can increase due to more new mortgages or fewer defaults.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.